The normal rules don't apply! Looking for pullbacks and tightness I am not a big fan of video games--nothing against them, just not my thing--but some of my friends are, and occasionally, if the stars align and I actually have some free time imagine!
When this happens, of course, I generally have no idea of how to play; my friend then explains how to equip my character with weapons or magic, the best way to improve his strength or other powers and the workings of the game in general. In other words, in this fantasy realm, there are all sorts of rules and tools, and I have to pick up on them to compete.
I don't argue with any of the tactics because, well, they are proven to work in the game. In a way, I think that is how new investors should think about the stock market If you go into the market as a blank slate--just like how I went into this video game, realizing I didn't know how to play at all--you'll be better able to learn or, if you've been at it a while, re-learn what actually works in the market.
However, that is an impossible task for most. Because the market is rooted in the real world business and earnings news, dividends, buyouts, etc. Unfortunately, that is often the exact opposite of how the market actually works! Things that make sense in the real world often cause investors to lose money when it comes to the stock market. It truly is a contrary animal. The reason why can best be summed up with a passage from an obscure book called Ten Years of Wall Street, by Barnie Winkleman.
I think I've written about this before, but it's one of the best paragraphs I've ever read on the market: The golden mean is non-existent in Wall Street, because the speculative mechanism does all things to excess [and] are distinct from the calmer tenor of business. Those who seek to relate stock movements to the current statistics of business, or who ignore the strongly imaginative taint of stock operators, or who overlook the technical basis of advances and declines, must meet with disaster, because their judgment is based upon the humdrum dimensions of fact and figures in a game which is actually played in a third dimension of the emotions and a fourth dimension of dreams.
If not, I hope this helps get you on the profitable path. Buy low, sell high: In real life, all of us want a bargain, but in the market, stocks tend to trend--and that means stocks in major downtrends tend to move even lower, while stocks at new highs tend to move higher. Of course, I am generally referring to growth stocks; there are plenty of value-based stock picking systems that buy beaten-up stocks with success.
The fundamentals are good, so I'll hold it: Sure, there is occasionally one super stock that can keep pushing higher for five or six years. The insiders are selling, so I should sell: Insider selling sounds like a great tool, but we've been at this more than 40 years and have yet to find a great system that involves insider selling.
We think the reason is two-fold: First, many insiders sell to book some profits and diversify, not because they think business is about to collapse.
But, second, the real drivers of a stock aren't the insiders, it's the institutional investors. So if insiders are selling a few million shares, but mutual funds, pension funds and other institutional investors are buying tens of millions of shares, the stock is headed higher. When I recommended Baidu in July , it was priced at 55 times earnings.
First Solar, back in March , was times earnings! But both went up more than five-fold during the next year or two. I can't buy that stock because I can't afford the price!: Ah, yes, the price of the stock; to many, it's the 1 indicator of a stock's quality. But nothing could be further from the truth--again, remember that institutional investors are the ones that drive stocks up and down. And I can tell you one thing for sure--they don't care if a stock is 20 or 50 or or Actually, it's a fact that the big winners usually come off their launching pads around 20 to 50 per share.
Of course, there are exceptions to every rule; heck, we have our own newsletter Cabot Small-Cap Confidential that ferrets out under-the-radar, low-priced stocks with big potential. But realize that editor Tom Garrity is an expert in this subject; most investors, on the other hand, are not, and simply go with low-priced stocks to continue with this example just because, well, they're low priced. The bottom line is that, in the stock market, what "feels" right is often wrong.
It's important to constantly focus on what actually works in the market, not what you or someone else thinks should work. The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc. Enter up to 25 symbols separated by commas or spaces in the text box below.
You would think such a market would provide ample buying opportunities, but most of the best stocks at this point are well extended from proper entry points, or at least, lower-risk entry points. As I talked about in my last Cabot Weekly Review video , the key isn't to obsess about a market pullback. Still, while buying after a few down days in the market is wise, the real key is to buy the real leaders at the right time. Thus, look for top-performing stocks that have either consolidated for a few weeks, or have recently staged big-volume rallies out of consolidations and are now pulling back a bit.
SXC is a specialist in pharmacy benefit management PBM , and can take over the pharmacy operations of a health plan, including claims management and review, billing, patient education and formulary analysis and control. SXC has grown significantly via takeovers, and right now the market is watching two stories. The first is the news back in October that Cigna Corp. Observers expect that a few modest divestitures by SXCI will ultimately secure approval.
Historically, the company has generally beaten estimates and guided higher, so my guess is that these figures are actually conservative. Just as important, the stock itself formed a deep double-bottom base during last year's market maelstrom, but then rallied back and tightened up in the 60 to 65 area in January and February. Since then, though, the stock has moved straight sideways on light volume, as its moving averages catch up.
I think the stock can be bought either on a a drop toward its day moving average, currently around Either way, it looks like SXCI could offer a relatively low-risk entry sometime during the next couple of weeks. This article appears in: More from Cabot Heritage Corporation.
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